Dell Warns of Layoffs, Motherboard Replacements

Dell Inc., which on Monday night issued a third quarter earnings warning, has enacted what it characterizes as a small number of layoffs as a part of a restructuring it says will cut costs and increase efficiencies.

The Round Rock, Texas PC maker, will also replace numerous motherboards in Optiplex GX270 and GX280 business desktop PCs, due to faulty capacitors.

The layoffs and the motherboard replacement program, which Dell says its handling by working with individual customers, are both included in a $450 million charge the company said it would take against its fiscal third quarter earnings, which will be announced on Nov. 10.

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Layoffs, which have been frequent in the PC industry over the last several years, have been rare for Dell. The company, instead, has been on a growth streak since 2001 when an economic downturn caused a PC market slowdown.

Dell saw the downturn as an opportunity. It cut prices in an effort to take market share from competitors, such as Compaq Computer Corp. and Hewlett-Packard Co.

HP later acquired Compaq, which was battered in the downturn, while Dell continued to gain market share, becoming the top seller of PCs worldwide, according to IDC and Gartner Group. It had about 17 percent of the worldwide PC market during the third quarter, Gartner figures showed, versus number two HPs share of just over 15 percent, the firm said earlier in October.

But of late, Dell has admitted having difficulties of its own. The company said that its consumer PC pricing strategy caused the bulk of a $300 million second quarter sales shortfall, Reuters reported.

Now it says that lower than expected sales to consumers in the United States and the UK will cause it to miss its previous guidance of revenue of between $14.1 billion to $14.5 billion for its third fiscal quarter and instead take in about $13.9 billion.

Thus, in an effort to maximize its profits, it undertook a restructuring to consolidate some functions to improve operational efficiency. The restructuring created some job redundancies, which led to the layoffs, a company spokesman said.

“We took several actions, which were designed to enhance operating efficiency, improve our performance and also reduce costs,” said Jess Blackburn, a company spokesman. “Those steps resulted in some job eliminations.”

Blackburn refused to disclose the number of employee affected. However he said it was “a small percentage” of Dells worldwide employee base, which includes about 61,000 people, worldwide, according to the companys Web site.

The layoffs, which affected a range of employees, including management, took place in Austin, Texas, in the UK and also in the companys Asia Pacific and Japan offices, Blackburn said.

But the motherboard replacement program will account for the bulk of the charge, or about $300 million, he said.

The replacements are necessary as some capacitors on some motherboards shipped in its GX270 and GX280 systems failed after a period of months. The failure, which is evidenced by a PC that wont boot, comes when the capacitors bulge and fail.

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Dell is handling each customer individually, Blackburn stated, using its customer support organization to issue the motherboard replacements.

“Were repairing the products in the field as problems arise,” he said. “Theres no safety issue, no data loss for our customers.”

Blackburn refused to say how many PCs might have received the bad capacitors or when they might have been manufactured.

“Were working with our costs and addressing their concerns and making repairs to the products as problems arise,” he said.

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